Time Value of Money

Reporters:
Group 4
Mr. Jefferson Soriano
Ms. Karen Sotelo
Reporter 1: Karen Sotelo
Topics: A. Overview of money’s
time value
B. Future value of one
amount
C. Future value of annuity
Overview of money’s time
value

• The time value of money (TVM) is the

concept that a sum of money is worth
more now than the same sum will be at
a future date due to its earnings
potential in the interim. This is a core
principle of finance. A sum of money in the
hand has greater value than the same sum
to be paid in the future.
Importance of the Time Value of Money

• Time value of money is integral in making

the best use of a financial player’s limited
funds.

➢Savings
➢Investments
➢Purchasing Power
Money has time value because of the
following reasons:

• Risk and Uncertainty

• Inflation

• Consumption

• Investment opportunities
Future value of one amount

• The future value of a single amount is equal to the

amount we save or invest today, the present cost of
an item, and such multiplied by one plus the interest
rate to the nth power, where n is the number of
compounding periods we hold that principle in the bank
or the number of periods that we invest the money.
Calculating Future Value

• The Future Value can be calculated

by knowing the present value,
interest rate, and number of
periods, and plugging them into an
equation.
 • The future value of an annuity

Future is the value of a group of

recurring payments at a certain
date in the future, assuming a

value of particular rate of return, or

discount rate. The higher the
discount rate, the greater the

annuity annuity's future value.

Two Types of Annuities

1. Ordinary annuities

2. Annuities due
 Calculating the Future Value of an Ordinary
Annuity

Future value (FV) is a measure of how much a

series of regular payments will be worth at some
point in the future, given a specified interest rate.
Present value of
annuity DUE
& present value
of one amount
Reporter: Jeff soriano
What is present value
annuity due?
The present value of an annuity due
(PVAD) is calculating the value at the
end of the number of periods given,
using the current value of money.
Another way to think of it is how much
an annuity due would be worth when
payments are complete in the future,
brought to the present
 • Present value can be a difficult topic to digest. It refers
to a concept called "the time value of money". Time
value of money can be explained thusly—if you were
given $1 (Php 50) today, it is worth more than the
Time Value of same $1 (PhP 50) five years from now. This is due to
the changing value of money and inflation, and the
Money potential of money to earn interest.
• The present value of an annuity due (PVAD) is
calculating the value at the end of the number of
periods given, using the current value of money.
Another way to think of it is how much an annuity due
would be worth when payments are complete in the
future, brought to the present.
Calculating the PVAD
For this formula, the following values are used:
P = periodic payment
r = rate per period
n = number of periods

The formula used is:

PVAD = P + P [ (1 - (1 + r) - (n - 1) ) ÷ r ]

For example, an annuity due's interest rate is 5%, you are promised the money at the end of 3 years and the
payment is Php 5,000 per year.
Using the present value of an annuity due formula:

(5000 + 5000 [ (1 - (1 + .05) - (3 - 1) ) ÷ .05 ]

(5000+ 5000 [1 - (1.05) - 2 ÷ .05 ] = 14,250

The value of 14,250 is the current value of three payments of 5,000 with 5% interest.
Present value
• is defined as today's value
of a single payment or
series of payments to be
received later, given a
specific interest rate. For
example, if someone
offered you 1 million dollars
today versus 1 million
dollars 20 years from now.
Present Value of Money Formula
Thank you!!!